Australia’s Liquid Natural Gas (LNG) industry looks like a $200+ billion ‘emperor with no clothes.’
Environmentally-destructive, technologically short-lived, chronically over budget and inexcusably late, LNG takes Australia backward in tackling climate change, protecting the environment and generating future national wealth.
An interconnected, multi-fuel pipeline network makes much more sense — for both Australia and Asia.
In coming years, Asia must invest trillions of dollars in new infrastructure, half of it to deliver energy. This infrastructure must serve a multi-decade transition of uncertain speed from coal to gas to low emission energy.
China envisages an infrastructure ‘Asian Silk Road’ deepening ‘connectivity.’
As Asia’s biggest, most populous, most energy-hungry economy, China will occupy the center of all this. Recently, China and Russia agreed to new large-scale gas pipeline interconnections. To China’s south, the ASEAN states have developed a Trans-ASEAN Gas Pipeline network to connect their 10 economies.
Done right, interconnected gas markets in Asia can speed the shift to the low emission energy sources the region so desperately needs.
Serendipitously, the core of a Pan-Asian Gas Pipeline connecting Australia, Southeast Asia, China and Russia is taking shape. What’s needed now is to integrate the system and eliminate uneconomic network fragmentation. Natural gas is a fungible commodity. It’s ideally suited to network delivery, just like data packets are over the internet.
In Australia, investment ‘animal spirits’ sense the potential. Investment interest in pipelines is growing,5 6 Australia’s Northern Territory wants pipeline interconnections with Australia’s East Coast states.7 Private companies also see the potential.
Natural gas pipelines can deliver and distribute baseload gas for the short-term, load-balancing gas for the medium term,8 and future fuels derived from renewable energy (like hydrogen) over the long-term. This is a critical flexibility LNG doesn’t have.
High voltage, high capacity power lines can later be laid parallel to this trans-regional gas pipeline network. This will increase energy market substitution, creating a more competitive energy market weighted by — among other things — distance, carbon and congestion.
In short, it will create a more liquid, competitive market that will boost Asia’s economic growth and living standards while reducing the legacy diseconomies that created the global climate change problem in the first place.
The efficiencies will be enormous. Consider some examples.
Fresh from success in transporting Three Gorges Dam hydropower over 2,000 kilometers to Shanghai, Chinese infrastructure state champion State Grid Corp. of China is now operating and upgrading the Philippine electricity grid under a 25-year contract. State Grid also now owns 41% of South Australia’s electricity distributor Electranet.
This gives Asia’s largest electricity grid constructor a presence in all three Asian regions: China, Southeast Asia and Australia. This hasn’t been a random strategy. Indeed, it’s been helped by changing public sentiment in Australia.
A symposium in Darwin in 2013 evaluated the potential for high-capacity power line routes from the Northern Territory to Indonesia’s eastern islands to connect Australia to Asia.9 Woodside and State Grid could team up here, building infrastructure partially funded by the AIIB that enhances Australia’s energy export capability while laying the southern foundation for China’s Maritime Silk Road.
What’s not to like?
Clearly, the long-term vision of a Pan-Asian Energy Infrastructure is emerging.
In this vision, LNG’s myopic 25-year depreciation schedule is a poor fit.
Global investment ‘animal spirits’ may be sensing this, and marking down LNG assets accordingly. As this occurs, the longest legacy left by LNG in Australia may be coastal industrial blight and a deeply environmentally-damaged Great Barrier Reef. Where’s the economic value there? Prices are now telling us.
Gas pipelines require less energy, serve more destinations, have more long-term flexibility and integrate better with other infrastructure, like power lines and fiber optics. LNG offers none of these synergies.
It’s time to thing big, think long-term, think multifaceted and think multilaterally. In one corner are infinite depreciation, carbon-efficient pipelines and power lines; in the other is short-term LNG and no carbon prices.
Which would you pick for your children?
Xinhua, Nov 27, 2014 ↩
Northern Territory Government, ↩
Environment Centre NT ↩
The Australian, July 23, 2014 ↩